VISA Steel looking to invest in mineral reserves overseas

Intrepid trader: Vishambhar Saran says trading calls can go wrong at times, and one has to pay for them. Indranil Bhoumik/Mint

Updated: Fri, Nov 06 2009. 10 15 PM IST

Kolkata: If a minerals trader isn’t a contrarian, he is only going to earn labour cost, says Vishambhar Saran, a mining engineer who quit his cushy job as director (raw materials) at Tata Steel Ltd in 1994 to found a minerals trading firm, VISA Ltd, with less than Rs10 lakh.

In the last 15 years, Saran’s firm, initially headquartered in London, has fanned out across the world. It is now eyeing mineral reserves in countries such as Indonesia, Australia and South Africa.

Saran, who turns 62 in December, too has moved up the value chain. He has launched steel and power companies in India, and a ferrochrome business for which he has joined forces with Baoshan Iron and Steel Co. Ltd, China’s biggest steel manufacturer, popularly known as Baosteel.

Intrepid trader: Vishambhar Saran says trading calls can go wrong at times, and one has to pay for them. Indranil Bhoumik/Mint

So far, it would seem his trading strategies have reaped rich dividends. Yet, he says, “At times your trading calls are going to go wrong, and you’ll have to pay for them.” Saran learnt this the hard way soon after he started trading on his own.

In 1993-94, Tata Steel faced an exodus of sorts: key officials left the firm following a change in the top management. Saran, who had joined the company in 1969, was among those who quit. But unlike most others, he didn’t burn his bridges behind him.

Within months, Saran struck his first deal with Tata Steel. It was an unenviable start though, admits Saran, who lost a “quarter of a million dollars” in that transaction.

“It was a very small order—ferrosilicon worth $1.4 million (Rs6.5 crore now),” recalls Saran. “Tisco (the acronym by which Tata Iron and Steel Co. Ltd, now Tata Steel, was known earlier) wouldn’t have normally given me the order though I was the lowest bidder because I didn’t have a track record (as a trader), but because they knew me as an ex-colleague, they did.”

Order in the bag, Saran started shopping for funds in London since his company was based there. He was soon to realize that banks in the UK wouldn’t lend to a greenhorn like him. He eventually managed to seal the deal with money borrowed from a friend “for a fee”, but by the time the money came, prices had increased and Saran had to accept a loss.

“I could have backed out, but then it was my first deal, and that too with a company that had taught me the ABCs of minerals trading,” says Saran. “I would have allowed myself to be sold (out), but the commitment had to be honoured.”

The intrepid trader recouped his losses from another deal within a few days and managed to stay afloat. But it would be a while before his business stabilized.

There would be other issues over the next two years. In 1995, Saran’s firm was “doing well” in London when Visa Inc., the US-based financial services firm that operates a global electronic payment network, sent a legal notice saying he couldn’t use Visa as the name of his firm.

Trademark lawyers both in London and Kolkata said the cost of fighting a court case in the UK was high and that it wasn’t advisable to take on “such a big company”, but Saran held his ground.

“I hate to be bullied… I had obtained registration for my company from the UK government, so why should I get bullied into giving up the name?” says Saran, who claims he had named his firm after himself, “VISA” being a contraction of his first name.

With the help of one Gautam Chakravartti, a Kolkata-based trademark lawyer who had practised in the UK as well, Saran hit back, and eventually managed to establish his firm’s right to the VISA name.

“The settlement in the end was a joke. We had to commit that we wouldn’t ever launch a credit card business,” Saran fondly recalls.

Before long, another problem cropped up, and this one hurt his profits. Because Saran hadn’t taken legal advice when founding his firm, he didn’t realize that a London address would cost 30% of profits in taxes, which no minerals trading company could afford. Saran moved.

“Ours was the only trading company operating out of London… At the same time, I couldn’t immediately go to a tax haven because no respectable company would deal with a start-up based in Bahamas or Virgin Islands,” says Saran. After weighing a number of options, VISA moved to Switzerland, where taxes were lower.

Saran’s minerals trading firm has come a long way since. It now has offices across the world and “hundreds of millions of dollars” in credit lines from banks such as Credit Suisse Group AG, UBS, Societe Generale and BNP Paribas SA.

Yet he is circumspect about entering new businesses. Currently, Saran is looking to invest in mineral reserves in Indonesia, Australia and South Africa and to buy his own fleet of ships to make sure he retains complete control over the logistics of international trading.

Last October, Saran’s VISA paid 10 million Australian dollar (about Rs39 crore) to take a small equity interest in the Australian Securities Exchange-listed Handini Resources Ltd. With that, he secured rights to purchase 60% of the coal mined by the Perth-based company in Sumatra, Indonesia.

With this toehold in Indonesia, Saran is looking to expand aggressively in the island nation. After all, this country produces high-quality steam coal, used in cement and power plants. By offering cash support to miners who do not have enough capital to explore coal deposits on their own steam, VISA is securing off-take commitments, or the right to buy a substantial part of the produce at a pre-determined price.

“The company (Handini) has just started production in Indonesia. Initially it would be producing 2-3 million tonnes (of coal) per annum,” says Saran, whose son Vikas Agarwal, a resident of Switzerland, has joined the Handini board.

Vikas, a manufacturing engineer who graduated from Cambridge, headed VISA’s international trading operations from Zurich until recently. He now leads the group’s coal and fledgling power businesses. The group plans to build two power plants—a 1,000MW plant in Orissa and a 1,200MW facility in Chhattisgarh. Funding for the latter has been arranged and construction will likely start at the end of the year.

This is a part of Saran’s succession plans, for which he has been preparing his three sons.

Saran’s second son Vishal, an economics graduate from London School of Economics, looks after the steel and ferrochrome businesses. He is managing director of VISA Steel Ltd, the only listed company in the group, which manufactures pig iron, sponge iron, ferrochrome and coke, and in fiscal 2009 posted a net loss of Rs66 crore on a revenue of Rs1,035 crore.

His youngest son, Vivek, also a Cambridge-educated manufacturing engineer, lives in Singapore, leading VISA’s international trading business in ferroalloys and alumina. His future responsibilities include launching the group’s shipping business from Singapore.

For Saran, who started his career as a trainee at Tata Steel’s iron ore mines at Noamundi in Jharkhand district, becoming a director at the firm was nothing more than a “pipe dream” when he started. “I was lucky to be at the right place at the right time,” says Saran. “(At Tata Steel) I got a number of opportunities to develop new projects and businesses from scratch, and it was this opportunity that gave me the confidence to start my own venture.”

In 1994, when he quit Tata Steel, his initial target was to achieve a turnover of Rs100 crore. “When I saw Rs100 crore coming, I revised the target to Rs500 crore,” recalls Saran. The target was eventually raised to Rs5,000 crore, which, too, has been achieved in the year that ended in March.

“We are still kindergarten guys — small players in the trading business. Only when you think this man was an employee of Tata Steel, it (our turnover) looks big,” says Saran, who is setting much bigger targets for his children than he did for himself.

Though Saran has come a long way, he has not yet managed to reward shareholders of VISA Steel, says Rajesh Agarwal, director of Kolkata-based stockbroking firm CD Equisearch Pvt. Ltd.

In March 2006, Visa Steel sold 35 million shares for Rs57 apiece, raising Rs199.5 crore. Saran says he had to raise capital from the public in 2006 because there were too many projects in the pipeline. At the time, Saran and his family too bought five million shares at the same price.

“Most of Visa’s projects are under implementation,” says CD Equisearch’s Agarwal. “I wonder if they have launched too many projects together.”